Fallout from bank tax infects local market

Banks and mining companies led Australian stocks lower on Monday as concerns around the outlook for Europe, sparked by news of Cyprus’s bank tax, caused the local index to shed more than 2 per cent.

The benchmark S&P/ASX 200 Index dropped 104.8 points, or 2.05 per cent, to 5015.4 closing at its lowest point in more than two weeks.

Banks heralded the downward charge as market experts questioned whether the move in Cyprus heralded an opportunity for central banks to stage raids on bank deposits to repay federal debt.

Westpac shed 2.98 per cent to $29.97, Commonwealth Bank fell 1.37 per cent to close at $69.22 and National Australia Bank dropped 2.59 per cent to $30.49 even after comments from chief executive Cameron Clyne that its troubled UK operations were now profitable.

Perpetual head of investment market research Matthew Sherwood said he did not expect the weakness in the sector to be long-lived.

“Australian banks have better balance sheets [than European banks] and the country also has lower unemployment . . . it’s plausible that we will see some relative capital flows into Australian banks," he said.

Resources stocks were also among the biggest laggards on the local index on Monday.

BHP Billiton declined 2.42 per cent to $34.69. Rio Tinto wound back 2.85 per cent to $59.55, even amid reports its Oyu Tolgoi mine in Mongolia had received pledges of at least $3 billion from 10 banks.

The unprecedented decision sparked widespread unease throughout Europe as observers wondered whether the controversial scheme would be approved by Cyprus’s parliament.

Failure to get approval for the scheme may also have serious consequences throughout the region.

“If the parliament rejects the deal, we would be in a very fluid situation, where a form of euro exit is once again a risk to consider," Nomura currency strategist Martin Whetton said.

The Australian dollar fell against the US dollar but Perpetual’s Mr Sherwood said the currency still demonstrated a level of resilience against the bad news in Europe. Telecommunications giant M2 Communications ended the day as one of the index’ s biggest movers, joining just 21 stocks that closed trade in the black.

Interest in M2 soared 6.83 per cent on Monday morning to $4.85 following the announcement that the telecommunications company will acquire rivals Dodo Australia and Eftel in a deal worth $242 million. The deal is expected to push annual revenue at the company above $1 billion, making it the fourth-largest in the country.

Retailer Woolworths was one of the index’s worst performers after broker CLSA downgraded the stock to a “sell", citing concerns that the owner of Woolworths supermarkets, Dan Murphys and Masters hardware chains may be forced to pay out about $550 million in a put option in August this year.